The Chancellor warned that “aggressively” breaking up banks would do little to benefit the UK and insisted the Government’s plans to put in place a so-called “ring fence” to force banks to isolate their riskier, investment banking businesses from their retail arm was the right way to make the financial system safer.

“If we aggressively broke up all of our big banks, I am not sure that, as a society, we would benefit from it,” he said. “We don’t have a huge number of banks, sadly, large banks. I would like to see more.”

His comments came as he gave evidence to the parliamentary commission on banking standards where he was accused of attempting to pressure members into supporting his ring-fencing reforms.

“That work has been accepted, as far as I’m aware, by all the major political parties. We are now on the verge of getting on with it,” he said.

Several members of the Commission have argued in favour of breaking up large banks, including former Chancellor, Lord Lawson.

Ring-fencing will not require banks to formally split themselves up and instead will see them place a firewall between their retail and investment banking arms that would isolate riskier activities from customer deposits.

But Pat McFadden, a Labour MP and member of the Commission, hit back at Mr Osborne, accusing him of “bullying” over his attempts to push through the ring-fence approach. “I don’t think that the Chancellor’s attempt to bully the Commission, which he himself set up, will work,” said Mr McFadden.

Justin Welby, the incoming Archbishop of Canterbury, attacked Mr Osborne, saying the Chancellor’s arguments against a more radical shake-up were “an army of strawmen”.

The Commission has less than a month before it is expected to publish its report on banking reform, which will include its recommendations on the upcoming bank reform bill.

However, Andrew Tyrie MP, the chairman of the Commission, said the group had still not been given enough information to properly scrutinise the legislation.

“If we are to do our job properly, we must have the necessary detail. Much of this morning [yesterday’s hearing] has been spent attempting to elicit it,” he said.

In particular, the Commission is concerned that the Treasury has not given a sufficient explanation of exactly what products banks will be allowed to sell from the parts of their business that will be housed in their new “ring-fenced” units.

Current expectations are that lenders will be allowed to sell a limited selection of derivatives from inside the ring-fence, the part of their business that will contain their less risky deposit-taking, high street operations.

“I think we need a lot more detail if we are to be able to make a proper judgment on the Government’s legislation,” said Mr McFadden.